Michael Marquette’s “View from the Bridge”: A Real Scare for First Home Owners & Mums and Dads

It’s time to face up to what is about to hit thousands, if not hundreds of thousands of Australian families. The credit crunch is now touching the lives of most people in this country and the latest statistics on home prices throughout the nation are hitting people like an electric shock.

The First Home Owner Grant has acted to artificially increase prices for properties below $500,000 and created a “perfect storm” through poor lending practices, Governmental incompetence and out of control consumerism.

The availability of credit over the last decade has resulted in total household debt increasing by a factor of 5 times, from $700 billion AUD to more than $3.5 trillion. This credit explosion has allowed people to make insane financial decisions and pushed home prices to unsustainably high levels. I have quoted this statistic many times before and the gravity of the number never becomes any easier to comprehend.

With property prices across the country taking a tumble the problem is widespread. Both units and houses have suffered the price decline – neither have been immune. Many first home buyers have borrowed 100% plus or relied upon equity in parent’s homes to purchase their property.

First home buyers who have actually saved for deposits are already finding that their hard earned deposit has been eaten up and many are facing the reality of negative equity.

This has created a double edged problem with many mums and dads finding the equity they thought they had in their home all but gone, so assisting their children financially has become all the more difficult. There is no solution for this problem in the short term and in many cases there may simply be no solution forthcoming at all.

This will certainly create downward pressure on property prices above and below $500,000 as unemployment increases and distressed vendors are forced to accept lower prices. With credit cards at capacity, defaults are sure to increase and leave many families in untenable positions.

So how was this allowed to happen? Lenders made unsustainable decisions based on greed. Government at all levels showed a complete lack of understanding of sustainably and adequately housing families and consumers reveled in living the high life – lives they could not afford or sustain. In other words nothing was sustainable and it seems that everyone was asleep at the wheel.

I’m not predicting a doomsday or cataclysmic type of housing crunch. I do expect a generation of people who are more fiscally responsible and aware that they cannot rely on home prices increasing ever more. It may force many of us to examine how much we save and how much we are prepared to stretch ourselves in the search to live a life outside of our means. It certainly is food for thought!